Protecting the vulnerable investor

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Protecting investors

As the marketplace continues to evolve at a rapid speed, investing is becoming easier than ever, particularly for younger people. However, this increasing simplicity when it comes to making gains and losses has led to experts asking whether more needs to be done to protect this ‘vulnerable’ demographic.

Recognising a vulnerable investor

The Financial Conduct Authority (FCA) defines a vulnerable investor as ‘someone who, due to their personal circumstances, is particularly susceptible to harm, particularly when a firm is not acting with appropriate levels of care’.

While this has previously been regarded as older people, the rise in young investors is prompting the question of whether this definition needs to be expanded further.

The role of the FCA

Cryptocurrency and trading success stories are often covered widely by the press, so it is no surprise that young people are lured into the world of investing. However, with less financial resilience, making a loss could have significant consequences for them.

While the FCA is taking measures to provide greater protection, due to only regulating specific sections of the wider investment market, it is somewhat limited in terms of what it can control. Many of the cryptocurrency trading platforms that are popular with younger people, fall outside of the FCA’s control.

Protecting young investors

Protecting a younger demographic of investors is an industry wide issue. FCA-regulated or not, it should fall to the society to protect the most vulnerable by raising awareness of the risks involved with investing. Rather than introducing new regulation, which could stifle innovation within the industry, the FCA should be more focused on promoting awareness.

Regulated providers should continue to assess who they regard as vulnerable and focus on producing products that take that risk into account, as well as offering advice on how best to protect new investors.

To help reach the wider market, it would be wise to get larger, well-known advisers on board to help protect and inform younger, more vulnerable investors. As influential voices in the market, sharing their approaches and advice is highly likely to get noticed by smaller businesses.

Unregulated investment product providers could consider crafting a set of principle-based rules. These could offer advice around what should and shouldn’t be said when promoting the product. Although these rules would only be advisory, the more involved they are in promoting them, the greater the impact they would have.

Working together

While there will always be some reckless businesses that expose their customers to greater risk, the vast majority of those operating outside of regulation intend no harm.

With a high appetite for risk and a lack of resilience, the industry must work together to raise awareness and offer advice in a bid to protect young investors.

Get in touch with our  investment funds  team to find out how they can help.

Get In Contact

Kavita is Regional Head for our South region and also Head of our Investment Funds sector. She has a formidable reputation amongst her clients for technical excellence.

She specialises in a broad range of corporate finance transactions, both for public and private companies, including acquisitions, disposals, joint ventures, funding arrangements, restructurings and cross-border transactions.

Our depth and breadth of expertise in the investment funds marketplace means we can help you navigate through what can be a complex arena. Whether you’re a fund manager or an investor, we can advise you how and where to invest, how to establish and structure a new fund, build a portfolio and ultimately, realise value from your investments.

 

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Shakespeare Martineau raises more than £2m in two days with deal duo

Law firm Shakespeare Martineau helped raise more than £2.1 million in just two days by advising a pair of businesses on placings and subscriptions on the Standard List and AIM.

Clients of the firm; Crossword Cybersecurity Plc and One Heritage Group Plc announced the share issues on the 10th and 11th February 2021. Both had high demand from new and existing investors.

Property developers One Heritage Group undertake development and re-development of new and existing buildings, as well as facilities management and managing the letting of the properties. The new shares generated an additional £548,500 investment in the business in order to expand its property portfolio.

Cybersecurity and risk management experts Crossword Cybersecurity Plc undertook an oversubscribed fundraising of more than £1.6 million. The technology commercialisation company will invest the funds into sales and marketing resource, for product development and support for general working capital purposes.

Hybridan LLP acted as broker to both companies in connection with the placings.

Keith Spedding, partner and business transaction and growth specialist at Shakespeare Martineau, who advised on both deals, said: “These deals go to show that money is out there and available for good companies with good stories, and there is no sign of it drying up. Property and technology sectors are seeing a huge amount of investment, with other sectors such as MedTech and fashion also making stock market headlines. We are very pleased to have helped these two excellent companies on their growth plans.”

Experts in fast-growing businesses Shakespeare Martineau is reporting high levels of transactions in the Midlands and nationally – with the corporate team having supported several multi-million pound sales and mergers across property, biotech and finance sectors as well as advising the founding family of Dr Martens in its recent admission to the market as well as One Heritage Group’s original submission in December 2020.

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For further information please contact Keith Spedding or another member of the corporate team.

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Gender pay gap reporting has reached its second anniversary; for organisations that are required to report, communication is key. Changes and improvements in gender pay gap data are a marathon, not a sprint, and expectations should be managed about the pace of change.

Following a number of government consultations into ethnicity pay reporting, sexual harassment and pregnancy and redundancy, a number of potential changes may arise in the workplace.

Employers may need to undertake ethnicity pay reporting within the next few years, but which employers and the way the information is to be compiled and reported on remains to be seen.

Employers may also need to make changes to contracts of employment and precedent settlement agreements if legislative changes to confidentiality clauses are enacted. Such changes seek to avoid employees being prevented from disclosing sexual harassment suffered in the workplace.

Finally, the government is proposing to extend the so called “super rights” of women on maternity leave, when it comes to receiving preferential treatment for suitable alternative employment. Those rights would be extended to women who have disclosed their pregnancy and for the first six months after returning from maternity leave.  Similar rights in other “family friendly” legislation would also be updated.

All of these potential changes remain as a “watch this space” for now, but employers need to be ready to review and update their policies and procedures if they are enacted.”

Crossword Cybersecurity, the technology and consulting company focusing on the cyber security sector, has floated on the AIM market in London a market capitalisation of approximately £13.6 million, following a successful placing and subscription of approximately £2.0 million before expenses.

Crossword Cybersecurity plc focuses on the development and commercialisation of university research-based cyber security related software and cyber security consulting. The Group’s specialist cyber security product development and software engineering teams work with its university partners to develop the research concept into a fully-fledged commercial product that it will then take to market.

The Group’s aim is to build up a portfolio of revenue generating, intellectual property based, cyber security products. Rizikon Assurance, Crossword’s first product, is a SaaS platform that enables medium to large companies to assess the cyber maturity and GDPR readiness of their suppliers. Crossword’s team of expert cyber security consultants leverages years of experience in national security, defence and commercial cyber intelligence and operations to provide bespoke advice tailored to its clients’ business needs.

The company will use the funds raised principally to further develop the Crossword Cybersecurity plc’s Group’s operations and to support existing and future contracts.

We advised on all corporate and commercial aspects of the listing, together with their company secretarial team who’ve worked with Crossword Cybersecurity since its inception. Grant Thornton acted as nominated advisor and Hybridan as corporate finance brokers. The team included Catherine Moss, Jennie Davis and Hannah Maxwell (Corporate Finance), Kim Walker and Andrew Hartshorn (Intellectual Property), Jon Heuvel (Employment) and Ben Harber and Shaun Zulafqar (Company Secretarial). Polish Law advice was provided by Adrian Michalak and Jakub Jedrzejak of WKB Wierciński, Kwieciński, Baehr Sp. K, fellow members of the Multilaw Legal Network with Shakespeare Martineau LLP.

Catherine Moss, corporate finance partner in the London office of Shakespeare Martineau, who led on the transaction, said: “Crossword Cybersecurity is undertaking valuable work commercialising the endeavours of the academic cybersecurity community at a time when cybersecurity is high on the agenda for businesses, public institutions and individuals. Listing on AIM is a confident move which reflects the strength of the Company’s business proposition. It was a pleasure for our team, and WKB, to assist Tom Ilube, and his team, in reaching this important milestone.”

In this article we explore the detail of the ruling and what it means to companies which have listed bonds and other instruments which are subject to MAR.

The back story

Tejoori had two major investments, one of which (Bekon Holding AG) was the subject to a drag-along mechanism. This would have effectively required Tejoori to sell its shares to the bidding company, in a squeeze out by share purchase agreement for no initial payment. There was the possibility that the deferred payment would be significantly less than Tejoori’s valuation of $3.35 million. Tejoori had a mistaken understanding of the effect of the sale and purchase agreement and when it would be paid.

The FCA penalised Tejoori because it failed to release an announcement as soon as possible after being notified that the drag-along would occur. Tejoori’s misapprehension was highlighted by the fact that, once the takeover had been announced, there was a lot of speculation, mostly on bulletin boards, as to how much Tejoori would have received for its holding, with the Tejoori share price rising by 38% in two days. When it finally announced the details of the sale, however, its share price closed down 13%.

Details of the case

The BEKON shareholders’ agreement contained a drag-along provision that could be used by majority shareholders to require other shareholders to sell their BEKON Holding AG shares in the event of a takeover. In July 2016, Tejoori was notified that several major shareholders of BEKON had indicated that they would issue a drag-along notice to the other shareholders that would require them to sell their shares in BEKON as part of a takeover by Eggersmann Gruppe GmbH & Co. KG (Eggersmann). The drag-along notice would require Tejoori to sign a share purchase agreement (SPA) with Eggersmann.

Under the SPA, Tejoori would sell its BEKON shares to Eggersmann for no initial consideration with the possibility of receiving deferred consideration that was significantly less than Tejoori’s then known valuation of its investment in BEKON. Tejoori received the signed drag-along notice in July and its shares in BEKON were transferred to Eggersmann in August. Both BEKON and Eggersman issued press releases regarding Eggersmann’s acquisition of BEKON. The press releases did not refer to Tejoori and Tejoori did not release an announcement at that time.

Under MAR, companies are required to release information which is likely to affect the price of their shares or bonds or other tradeable instruments as soon as possible. The online bulletin boards contained clear evidence of speculation that the news would be good for Tejoori’s investment. Tejoori’s share price then rose by 38% over just two days after investors heard of the Eggersman buy-out of BEKON, not realising Tejoori had already had sold its shares. The failure came to light after the London Stock Exchange queried the quick rise in share price with Tejoori in August, however, the FCA found there had been “a misunderstanding of the legal effect of the SPA”, which meant Tejoori did not understand it had in fact sold its entire holding in BEKON. Tejoori, which first listed on AIM in March 2006, did not inform shareholders or the public about the sale despite it being classed as inside information.

Tejoori cancelled its admission to trading on AIM in December and co-operated fully with the FCA investigation, settling at an early stage in order to secure a 30% discount on the fine which would have otherwise been £100,000.

How does this affect businesses?

This is the first ruling since MAR came into force in 2016. It is very likely that the FCA will continue to impose further fines on companies in breach of MAR regardless of whether they act, or don’t act, recklessly or deliberately but, as with Tejoori, mistakenly. In addition to any financial penalty the reputational damage potentially caused by a breach could impact your business.

It is imperative that all companies with publicly traded shares, bonds or other instruments should have the appropriate processes in place to identify inside information and make such disclosures as are necessary.